The FSC is urging the federal government to remove all stamp duties from life insurance since they have a "direct impact" on Australia's levels of underinsurance.
In a submission responding to the federal government’s tax white paper, the FSC called for the “abolition of inefficient state taxes”, including stamp duties on life insurance.
“Stamp duties on life insurance are amongst the most distortionary and inefficient in the economy and have a direct impact on levels of underinsurance in the community,” the submission said.
“Higher levels of underinsurance in the community have an adverse impact on Australia’s social security spending.”
The FSC also said it conducted a survey of its members to determine the total amount of stamp duty collected on life insurance and life insurance rider benefits.
“Eighty per cent of Australia’s life insurance industry responded to the survey and the amount of stamp duty paid in 2014 was $377 million,” the submission said.
“The remaining 20 per cent of the market would be broadly proportional to this and a grossed-up sum of the life insurance duty paid in 2014 would be $453 million.
“This has grown by a staggering 84 per cent in the past five years.”
The FSC also noted that under the present arrangements, there is “little incentive” for state and territory governments to “go it alone” in abolishing “inefficient taxes”.
“While some have formally investigated abolishing inefficient taxes, the good work is often stymied by the absence of an alternate source of revenue,” the submission said.
“This is an especially poignant point, considering that the states and territories face an annual revenue shortfall of $100 billion.
“We therefore believe the Federation White Paper must finally address the vertical fiscal imbalance.”